Letter: Keynesian Budget that relies on free markets

Sir: Christopher Huhne suggests that Norman Lamont's Budget signals the end of Thatcherite economic policies and even a return to Keynesianism ('Read my lips: no more Thatcherism', 17 March). This is pretty far-fetched.

Mr Lamont made clear that in his view reducing the PSBR was the way to promote recovery: 'I believe that the greatest threat to sustained recovery in Britain would come not from a lack of demand, but from excessive government borrowing.' His deputy, the rather drier Michael Portillo, repeatedly said on Wednesday that recovery would occur if, and only if, the PSBR were reduced.

This is very close to the rhetoric of the great years of monetarism: restore 'sound finance' and the economy will benignly self-adjust. It also echoes other related Conservative stories that, if one controls some financial variable - the money supply, the exchange rate - the economy (suitably deregulated) can be left to itself.

The alternative view emphasises that the PSBR is a symptom of economic depression - high costs of growing unemployment, lower tax yield as businesses collapse - and not the cause. If the causes are attacked, the PSBR will come down in the medium term, even if the short-term implication may be a higher PSBR.

Yes, the Chancellor avoided high tax increases this year - a shrinking violet compared to the great days of high Thatcherism - although one should note that many economists argue that announcements of future tax increases are almost as depressing for economic activity as immediate tax increases.

But lying behind the detail of this Budget is still a strategy that relies on the free market putting the economy back to rights. There is not much Keynesian about that.

Yours faithfully,

DAN CORRY

Senior Economist, Institute of Public Policy Research

London, WC2

17 March